diff --git a/lib/ansible/inventory/__init__.py b/lib/ansible/inventory/__init__.py
index 00ee28debba..972042c9b14 100644
--- a/lib/ansible/inventory/__init__.py
+++ b/lib/ansible/inventory/__init__.py
@@ -146,7 +146,7 @@ class Inventory(object):
 
         # get host vars from host_vars/ files and vars plugins
         for host in self.get_hosts():
-            host.vars = utils.combine_vars(host.vars, self.get_variables(host.name, vault_password=self._vault_password))
+            host.vars = utils.combine_vars(host.vars, self.get_host_variables(host.name, vault_password=self._vault_password))
 
 
     def _match(self, str, pattern_str):
@@ -324,6 +324,7 @@ class Inventory(object):
         if ungrouped is None:
             self.add_group(Group('ungrouped'))
             ungrouped = self.get_group('ungrouped')
+            self.get_group('all').add_child_group(ungrouped)
         ungrouped.add_host(new_host)
         return new_host
 
@@ -429,20 +430,22 @@ class Inventory(object):
             if updated is not None:
                 vars = utils.combine_vars(vars, updated)
 
-        # get group variables set by Inventory Parsers
-        vars = utils.combine_vars(vars, group.get_variables())
-
         # Read group_vars/ files
         vars = utils.combine_vars(vars, self.get_group_vars(group))
 
         return vars
 
     def get_variables(self, hostname, update_cached=False, vault_password=None):
+
+        return self.get_host(hostname).get_variables()
+
+    def get_host_variables(self, hostname, update_cached=False, vault_password=None):
+
         if hostname not in self._vars_per_host or update_cached:
-            self._vars_per_host[hostname] = self._get_variables(hostname, vault_password=vault_password)
+            self._vars_per_host[hostname] = self._get_host_variables(hostname, vault_password=vault_password)
         return self._vars_per_host[hostname]
 
-    def _get_variables(self, hostname, vault_password=None):
+    def _get_host_variables(self, hostname, vault_password=None):
 
         host = self.get_host(hostname)
         if host is None:
@@ -450,10 +453,6 @@ class Inventory(object):
 
         vars = {}
 
-        # special case for ungrouped hosts, make sure group_vars/all is loaded
-        if len(host.groups) == 1 and host.groups[0].name == 'ungrouped':
-            vars = self.get_group_variables('all', vault_password=self._vault_password)
-
         # plugin.run retrieves all vars (also from groups) for host
         vars_results = [ plugin.run(host, vault_password=vault_password) for plugin in self._vars_plugins if hasattr(plugin, 'run')]
         for updated in vars_results:
@@ -466,9 +465,6 @@ class Inventory(object):
             if updated is not None:
                 vars = utils.combine_vars(vars, updated)
 
-        # get host variables set by Inventory Parsers
-        vars = utils.combine_vars(vars, host.get_variables())
-
         # still need to check InventoryParser per host vars
         # which actually means InventoryScript per host,
         # which is not performant
diff --git a/lib/ansible/runner/action_plugins/group_by.py b/lib/ansible/runner/action_plugins/group_by.py
index d00ddc8d8cf..25c2073fa0f 100644
--- a/lib/ansible/runner/action_plugins/group_by.py
+++ b/lib/ansible/runner/action_plugins/group_by.py
@@ -93,6 +93,7 @@ class ActionModule(object):
             if not inv_group:
                 inv_group = ansible.inventory.Group(name=group)
                 inventory.add_group(inv_group)
+                inventory.get_group('all').add_child_group(inv_group)
                 inv_group.vars = inventory.get_group_variables(group, update_cached=False, vault_password=inventory._vault_password)
             for host in hosts:
                 if host in self.runner.inventory._vars_per_host: